A rebasing has elevated Nigeria as the top African economy and brought to light new business potential
Thanks to its first economic rebasing since 1990, Nigeria this year overtook South Africa to claim the title of largest economy on the African continent.
The process, which most countries carry out every five years, saw Nigeria calculate its GDP based on current economic activities rather than those of 24 years ago. The revised figure not only reveals that the country’s economy is almost twice the size previously thought – $510bn (£300bn) in 2013 compared with the International Monetary Fund’s (IMF) estimate of $262bn – but that the deep-seated view of Nigeria as an oil and agriculture economy no longer holds.
With the Nigerian National Bureau of Statistics increasing the number of industries used to measure GDP from 33 to 46 and using production patterns from 2010 as a starting point, the relative share of oil and gas, in particular, has shrunk significantly. Based on the old calculations the sector made up 32 per cent of the economy, while under the revised measures it accounts for just 14 per cent. Similarly, agriculture’s share has shrunk from 35 per cent to 22 per cent.
Filling the void are industries that have sprung up in the past two decades and whose growth could be exponential. Although it makes up just 1 per cent of the economy at the moment, the Nigerian film industry did not feature at all in previous GDP calculations.
Often derided for their low budgets and caricatured portrayals of everyday life, so-called Nollywood films have a widespread appeal that has seen them break into export markets in the West Indies and India. Although the focus is on quantity rather than quality, Nigeria is now the world’s second-largest producer of films after India and, because the films are so cheap to go and see, their popularity is assured.
Like motion pictures, telecoms barely featured in the old view of the Nigerian economy, making up just 1 per cent of 2013’s GDP under the old calculation. In the rebalanced snapshot, however, telecoms accounts for 9 per cent. This industry has mushroomed in the past decade, after mobile phone networks were introduced to replace the patchy and unreliable fixed-line service.
The other main contributor to the revamped GDP profile is services generally – and banking more specifically. Although just 20 per cent of Nigerians have bank accounts, the aim is to significantly increase that number, with a cashless banking project from the Central Bank of Nigeria driving much of the growth in the sector.
Despite the positives, the fact remains that Nigeria is a country riven with problems and contradictions. As inconsistent as it seems, while Nollywood is booming, 25 per cent of the population is unemployed. While the country is rich in natural resources, 48 per cent of its people have no access to electricity and, while the telecoms sector continues to blossom, most Nigerians have more than one mobile phone simply because network coverage is so poor.
Unbundling this web of contradictions will hold the key to Nigeria’s sustained success. Take the agriculture sector. Nigeria, which still has large swathes of poverty, uses its fertile land to grow food for its own people, something that is much cheaper than importing food as it did in the past. However, poor infrastructure and the reliance on diesel-powered generators to process the food means production and distribution is still far more expensive than it should be.
With improved roads and power coverage, not only would food be cheaper but Nigeria would be able to begin exporting it produce.
If food were cheaper then Nigerians would have more money in their pockets – giving a positive knock-on effect on the domestic economy. This, in turn, could prompt more people to open bank accounts, and the growth in mobile telephony, the emergence of telephone banking and the number of banks operating in the country will make it easier for them to do this.
Yet as most mobile phone masts are powered by expensive-to-run and unreliable diesel generators, banking and telecoms have been stopped in their tracks too. And it all comes back to power.
The process of providing cheaper and more reliable power has already begun. Last year the Nigerian government sealed a $2.5bn privatisation in the power sector by handing control of 15 state-owned electricity companies to private companies, while plans to overhaul the mobile telecoms industry have been afoot for some time. But progress is slow, meaning Nigeria is still a long way from realising its economic potential.
Thanks to a revised GDP and what finance minister Ngozi Okonjo-Iweala calls its “psychological impact” on foreign investors, positive change is within Nigeria’s grasp. But it’s going to have to reach for it.
Key figures: Nigeria
Life expectancy at birth: 52
Source: IMF, National Bureau of Statistics
What the lawyers say
Perchstone & Graeys managing partner Osaro Eghobamien: “With the rebasing of the economy we stand in a unique position [having Africa’s largest economy, but also having issues with unemployment, poverty and corruption], and there are all sorts of opportunities. There’s a focus on economic wealth, but also, with the world’s attention focused here, a need to deal with issues such as security, corporate governance and corruption.”
Dentons senior counsel Raj Kulasingam: “Nigeria is a complex place: it has a massive and growing economy but soaring unemployment, and a huge amount of natural gas but no power. There’s a growing middle class and a lot more consumerism, and that’s driving certain sectors of the economy that never used to grow.”
Templars partner Chike Obianwu: “Unfortunately, there are problems in the North East and the abduction of over 200 schoolgirls [by militant Islamist group Boko Haram] has taken much of the shine off the rebasing. In spite of that we’re confident Nigeria will be increasingly attractive. It has managed over the years, in spite of challenges like
the infrastructure deficit and governance issues, to attract foreign investment. You can’t ignore the size of the market.”